Multi-academy trust pension deficits for support staff are soaring into the tens of millions, with schools facing another hike in employer contributions, experts have warned.
The largest trusts, one of which has a deficit in their Local Government Pension Scheme [LGPS] in excess of £68 million, might seek to balance costs by outsourcing non-teaching staff to private companies, say pension and school finance experts.
And Schools Week has been told that taxpayers would have to step in to cover an academy’s deficit in the case of closure without a new sponsor.
Paul Hamilton, an actuary and head of higher education at consultancy Barnett Waddingham, said continuing poor economic conditions, including market uncertainty after Brexit, and people living for longer meant 20 years of investment returns on pension funds were currently “missing”.
As a result, a three-yearly evaluation of the LGPS looks set to recommend a hike in employer contributions in April.
“Pensions are very long term. You’ve got people now going in at 20 and not dying until 100. The idea is you review it regularly to keep nudging the estimates on track,” he said.
You’ve got people now going in at 20 and not dying until 100
“Now that idea hasn’t worked so well, because things have moved so quickly.”
He said changes in government bond yields, worsened by Brexit, meant “20 years of investment return is missing that we’ve got to try to make up from employers”.
An analysis of academy accounts by Schools Week found the deficit for the LGPS, a defined contribution benefit scheme for non-teaching staff including school business leaders and teaching assistants, is growing every year as chains expand and returns on investment fail to improve.
The deficit at United Learning, which runs 41 primary and secondary academies, increased from £20.8 million in 2014, to £34.2 million in 2015.
The pension deficit at REAch2, which runs 55 primaries, rose from £12.6 million in 2014, to £18.4 million last year. Academies Enterprise Trust, the country’s largest academy chain, has a pension deficit of £68.6 million, down from £71.9 million the previous year, when nine of its academies were merged, closed or moved to other trusts.
But academies have “no real voice” to combat their employer contribution rate because it is calculated by their local pension fund authority according to the average age of staff and value of investments across all of its schools, Hamilton said.
And with the nationally fixed employer contribution rate of 16.4 per cent for the Teacher Pension Scheme also expected to rise, school leaders are warning more cost-cutting measures may be on the cards.
Micon Metcalfe (pictured), director of finance at Dunraven School in south London, said: “The numbers look big, but it’s the sensitivity around the contributions for employer costs that has the real impact.
Several pension experts said the government would ultimately have to cough up should a trust collapse without a new sponsor
“If your salary costs rise and your budgets remain the same, we’re finding it much more difficult because most of our costs are staff.”
Outsourcing support staff to private companies would create savings, Metcalfe said, claiming that some schools had already approached her to sound out if this was possible.
Although existing staff would retain right of access to the LGPS, new staff could be enrolled on the company’s own pension terms.
There is no legislation to prevent a group of employees being outsourced, but the government blocked AET when it tried to transfer all its non-teaching employees to PricewaterhouseCoopers two years ago.
And while the deficit remains with academy trusts, several pension experts said the government would ultimately have to cough up should a trust collapse without a new sponsor – something described as a “extreme circumstance” by John Wright, head of public sector at pensions firm Hymans Robertson.
The Department for Education (DfE) refused to confirm whether this would be the case.
But the Education Funding Agency stepped in last year to pay Hampshire County Council a one-off settlement, believed to be in the millions, to prevent pension liabilities of cash-strapped Totton college being transferred to its new sponsor, social justice charity Nacro.
However the pension deficit of £1.3 million at the Lilac Sky trust, due to be wound up this year, will be transferred to the new sponsors taking over its nine schools.
A DfE spokesperson, while not able to direct Schools Week to specific advice for schools, said: “We know that academies face increasing costs to cover their pension obligations and we are working with colleagues across government to address this. Pension funds have a duty to ensure costs are affordable.”